What is the difference between voluntary and compulsory liquidation?

Voluntary liquidation occurs when the company’s directors and shareholders decide to wind up the business, while compulsory liquidation is forced by the court after a creditor petition. In a Creditors’ Voluntary Liquidation (CVL), directors take proactive steps to appoint a licensed insolvency practitioner as liquidator and close the company in an orderly fashion. This approach often minimises disruption, allows directors to manage the process, and demonstrates responsible conduct. Compulsory liquidation, by contrast, usually begins with a creditor filing a winding-up petition, often after non-payment of debts. Once the court issues a winding-up order, control of the company passes to the Official Receiver. Compulsory liquidation can be more damaging to directors’ reputations and may trigger investigations into misconduct. While both processes end with the company being closed and assets sold, the main difference is who initiates it—directors in voluntary cases, or creditors and the court in compulsory ones.